Candlestick Pattern Lesson no.12
On-Neck Pattern
Pattern Information: The On-Neck pattern is a bearish continuation pattern that occurs after a downtrend. It consists of two candlesticks: a bearish (down) candle followed by a smaller bullish (up) candle that closes very near the low of the previous bearish candle. The pattern suggests a potential continuation of the prevailing downtrend.
How to Use:
Identify Downtrend: Look for a clear downtrend in the price chart.
Spot On-Neck Pattern: Observe a bearish candle followed by a smaller bullish candle that closes near the low of the bearish candle.
Confirmation: While the pattern is significant, consider additional confirmation from other technical indicators or patterns.
Entry: Consider entering a short (sell) position at the opening of the next candle following the On-Neck pattern.
Stop Loss: Place a stop-loss order above the high of the On-Neck pattern or at a suitable resistance level.
Target: Determine a price target based on support levels or other technical analysis tools.
Important Points:
Close Near Low: The key feature of the pattern is the smaller bullish candle closing very near the low of the bearish candle.
Volume: Look for consistent trading volume accompanying the pattern, as it can confirm the continuation potential.
Confirmation: Rely on confirmation signals to validate the On-Neck pattern, especially in volatile markets.
Market Context: Consider the broader market trend, news, and other factors before relying solely on the On-Neck pattern.
Variations: There are variations of the On-Neck pattern, such as the 'In-Neck' pattern, where the bullish candle's close is slightly above the low of the bearish candle.
Remember that while patterns like the On-Neck pattern can provide insights into potential price movements, trading decisions should be made in conjunction with other technical and fundamental analysis tools. Risk management remains crucial, and cautious decision-making is essential for successful trading.
